|
In saying yes, WaMu sealed its own collapse
PETER S. GOODMAN AND GRETCHEN MORGENSON; The New York Times
Last updated: December 28th, 2008 01:14 AM (PST)
SAN DIEGO – As a supervisor at a Washington Mutual mortgage processing center, John Parsons was accustomed to seeing baby sitters claiming salaries worthy of college presidents, and schoolteachers with incomes rivaling stockbrokers’. He rarely questioned them. A real estate frenzy was under way, and WaMu, as his bank was known, was all about saying yes.
Yet even by WaMu’s relaxed standards, one mortgage four years ago raised eyebrows. The borrower was claiming a six-figure income and an unusual profession: mariachi singer.
Parsons could not verify the singer’s income, so he had him photographed in front of his home dressed in his mariachi outfit. The photo went into a WaMu file. Approved.
“I’d lie if I said every piece of documentation was properly signed and dated,” said Parsons, speaking through wire-reinforced glass at a California prison, where he’s serving 16 months for theft after his fourth arrest – all involving drugs. While Parsons, whose incarceration is not related to his work for WaMu, oversaw a team screening mortgage applications, he was snorting methamphetamine daily, he said.
“In our world, it was tolerated,” said Sherri Zaback, who worked for Parsons and recalls seeing drug paraphernalia on his desk. “Everybody said, ‘He gets the job done.’”
BAD LOANS REACH $11.5 BILLION
At WaMu, getting the job done meant lending money to nearly anyone who asked for it – the force behind the bank’s meteoric rise and its precipitous collapse this year in the biggest bank failure in American history.
On a financial landscape littered with wreckage, WaMu, a Seattle-based bank that opened branches at a clip worthy of a fast-food chain, stands out as a singularly brazen case of lax lending. By the first half of this year, the value of its bad loans had reached $11.5 billion, nearly tripling from $4.2 billion a year earlier.
Interviews with two dozen former employees, mortgage brokers, real estate agents and appraisers reveal the relentless pressure to churn out loans that produced such results.
While that sample may not fully represent a bank with tens of thousands of people, it does reflect the views of employees in WaMu mortgage operations in California, Florida and Illinois.
Their accounts are consistent with those of 89 other former employees who are confidential witnesses in a class-action suit filed against WaMu in federal court in Seattle by former shareholders.
According to these accounts, pressure to keep lending emanated from the top, where executives profited from the swift expansion – not least, Kerry Killinger, who was WaMu’s chief executive from 1990 until he was forced out in September.
Between 2001 and 2007, Killinger received compensation of $88 million, according to the Corporate Library, a research firm. He declined to respond to a list of questions, and his spokesman said he was unavailable for an interview.
During Killinger’s tenure, WaMu pressed sales agents to pump out loans while disregarding borrowers’ incomes and assets, according to former employees. The bank set up what insiders described as a system of dubious legality that enabled real estate agents to collect fees of more than $10,000 for bringing in borrowers, sometimes making the agents more beholden to WaMu than they were to their clients.
WaMu gave mortgage brokers handsome commissions for selling the riskiest loans, which carried higher fees, bolstering profits and ultimately the compensation of the bank’s executives. WaMu pressured appraisers to provide inflated property values that made loans appear less risky, enabling Wall Street to bundle them more easily for sale to investors.
“It was the Wild West,” said Steven Knobel, a founder of an appraisal company, Mitchell, Maxwell & Jackson, that did business with WaMu until 2007. “If you were alive, they would give you a loan. Actually, I think if you were dead, they would still give you a loan.”
JPMorgan Chase, which bought WaMu for $1.9 billion in September and received $25 billion a few weeks later as part of the taxpayer bailout of the financial services industry, declined to make former WaMu executives available for interviews.
JPMorgan Chase also declined to comment on WaMu’s operations before it bought the company. “It is a different era for our customers and for the company,” a spokesman said.
‘IT WAS A DISGRACE’
For those who placed their faith and money in WaMu, the bank’s implosion came as a shock.
“I never had a clue about the amount of off-the-cliff activity that was going on at Washington Mutual, and I was in constant contact with the company,” said Vincent Au, president of Avalon Partners, an investment firm.
Some WaMu employees have regrets.
“It was a disgrace,” said Dana Zweibel, a former financial representative at a WaMu branch in Tampa, Fla. “We were giving loans to people that never should have had loans.”
If Zweibel doubted whether customers could pay, supervisors directed her to keep selling, she said.
The ultimate supervisor at WaMu was Killinger. An investment analyst by training, he was attuned to Wall Street’s hunger for growth. Between late 1996 and early 2002, he transformed WaMu into the nation’s sixth-largest bank through a series of acquisitions.
A key deal came in 1999, with the purchase of Long Beach Financial, a California lender specializing in subprime mortgages – loans extended to borrowers with troubled credit.
WaMu underscored its eagerness to lend with an advertising campaign introduced during the 2003 Academy Awards: “The Power of Yes.” No mere advertising pitch, this was also the mantra inside the bank, underwriters said.
“WaMu came out with that slogan, and that was what we had to live by,” Zaback said. “We joked about it a lot.” A file would get marked problematic and then somehow get approved. “We’d say: ‘OK! The power of yes.’”
Revenue at WaMu’s home-lending unit swelled from $707 million in 2002 to almost $2 billion the following year, when the “The Power of Yes” started.
Between 2000 and 2003, WaMu’s retail branches grew 70 percent, reaching 2,200 across 38 states, as the bank used an image of cheeky irreverence to attract new customers. In offbeat television ads, casually dressed WaMu employees ridiculed staid bankers in suits.
Branches were pushed to increase lending. “It was just disgusting,” said Zweibel. “They wanted you to spend time, while you’re running teller transactions and opening checking accounts, selling people loans.”
THE PHONE BANK
Employees in Tampa, Fla., who fell short were ordered to drive to a WaMu office in Sarasota, an hour away. There, they sat in a phone bank, calling customers to push home equity loans.
“The regional manager would be over your shoulder, listening to every word,” Zweibel recalled. “They treated us like we were in a sweatshop.”
On the other end of the country, at WaMu’s San Diego processing office, Zaback’s job was to take loan applications from branches in Southern California and make sure they passed muster. Most of the loans she said she handled merely required borrowers to provide an address and a Social Security number, and to state their income and assets.
She ran applications through WaMu’s computer system for approval. If she needed more information, she had to consult with a loan officer – which she described as an unpleasant experience.
“They would be furious,” Zaback said. “They would put it on you, that they weren’t going to get paid if you stood in the way.”
On one loan application in 2005, a borrower identified himself as a gardener and listed his monthly income at $12,000, Zaback recalled. She could not verify his business license, so she took the file to her boss, Parsons.
He used the mariachi singer as inspiration: a photo of the borrower’s truck emblazoned with the name of his landscaping business went into the file. Approved.
Originally published: December 28th, 2008 12:14 AM (PST)
|
